Oil, Gas Drilling In Canada Set For A Decline

Drilling for oil and gas in Canada will likely decline by 5 percent in 2019, the Petroleum Services Association of Canada has forecast, blaming pipeline capacity shortages and the resultant discount in Canadian heavy to the West Texas Intermediate benchmark for the outlook.

The PSAC said it expected oil and gas companies to drill 6,600 new wells next year, which would be down from 6,980 this year and the lowest number of new wells in three years. Yet over the year, drilling will increase, the PSAC forecast, as the volume of oil transported by rail, for lack of enough pipelines, continues to grow.

On the good news front, the discount at which Western Canadian Select trades to West Texas Intermediate is seen to narrow from the current over US$50 a barrel to about US$24.50 a barrel, with the average WTI price for 2019 projected at US$69 a barrel.

The National Energy Board of Canada recently released a report forecasting that oil and gas production will continue to increase while domestic consumption declines thanks to energy efficiency. Natural gas, along with hydropower and other renewable sources, will come to account for a bigger share of the country’s energy mix while oil production grows for exports.

In the next 20 years, NEB expects crude oil production to grow by as much as 58 percent while natural gas production expands by 33 percent, both helped by improving extraction technology that will maintain the industry’s competitiveness.

Not all believe, however, in this competitiveness. In fact, industry executives are quite disgruntled about the discount at which WCS is trading to WTI as well as by the high carbon taxes they are obliged to pay. The combination of factors has eaten into their bottom lines and will likely continue doing it as no new pipeline projects are coming on line any time soon and producers are forced to resort to costlier oil-by-rail options.